How Much Money Do Amazon Routes Make?
Understanding the valuations of an Amazon DSP business is a hot topic of conversation right now. With the constant growth of e-commerce, the transportation industry is skyrocketing.
There are two traditional methods for evaluating a transportation business:
Percentage of revenue: This is where we look at the gross revenue of the operation and assign a percentage of the revenue as a traditional valuation metric.
A multiple on the EBITA (earnings before interest, taxes, depreciation) earnings: Currently, we see Amazon operations selling for around 35% of one year's annual revenue.
You will notice that the valuation range is significantly lower compared to FedEx. In a traditional last-mile delivery FedEx operation (also known as P&D routes), you see transactions take place for anywhere between 70-100% of Total Revenue. This means you are looking at 3X the valuation potential of a FedEx business versus an Amazon operation.
Overall, this is traditional to what we have seen in the historic days of the FedEx operating space. However, as consumer confidence, the viability of that investment, and the history of consistently profitable operations continue, we have seen the valuation metrics rise.
Similarly, with the multiples, we see in Amazon space valuations ranging from 2.2X to 3.4X the high-end multiple of one year’s annual EBITA earnings.
When we began evaluating FedEx routes almost a decade ago, it was common to see FedEx operations sell at 3X EBITA range. Today, FedEx businesses sell somewhere between 4 ½ and even 5 ½ X earnings.
Again, we have seen significant increases in those valuations over the last 10 years versus looking at the Amazon metrics that are certainly on the lower market valuation side.
Ways You Can Impact the Valuation
One way you can potentially impact your valuation with Amazon is by controlling the consistency of your profitability. Another way is by being creative with the deal structure to allow a buyer to offer a larger purchase price and total valuation in exchange for a larger hedge on the potential risk of the investment.
It’s common on the Amazon side to see larger operations in terms of the highest day dispatch count. On average, we see about 20 to 30 routes dispatched on high-volume days. In the FedEx space, we see around 10 to15 routes daily. This equates to larger revenue, larger operating profit, and overall prices.
For example, we may see an Amazon business generating $4 million in revenue and have an average operating profit of about 13%. This means you will see at least $500,000 plus in operating EBITA. Suppose you put that on an average multiple of about 2.7X. In that case, it’s not uncommon to see an average valuation on the Amazon side of about $1.4 million for that total $4 million worth of revenue.
Acquiring an Amazon Business
Within the Amazon network, you essentially have the opportunity of acquiring a business at a remarkably reduced valuation from both a multiple and percentage of revenue standpoint compared to current market valuations in the FedEx space. For this, these operations can be great investment opportunities.
With the investment, you have the opportunity to secure a significant revenue operation with large operating cash income and the potential of equity appreciation and upside if the FedEx and Amazon operations mirror each other in terms of valuation.
Want to Learn More?
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